HOUSTON -- Walking into one of three URTeC topical breakfast rooms on Tuesday morning, attendees had a fairly good sense of what the speaker was going to say, given that the topic was “Industry Poised for Growth or Prudence?” And sure enough, R. T. Dukes, research director at Wood Mackenzie, fulfilled their expectations for big numbers and then some.

Dukes set the state for a morning of dazzling numbers when he started off by saying that by 2025, 15 MMbpd of new oil supply must be brought onstream to fill the (global) supply gap. “The global oil market is counting on the U.S. to deliver,” opined Dukes with some degree of understatement. He went on to explain that U.S. production gains are all the more important now, because output declines are expected in places like China, Venezuelan and the UK, among others. Some of that will be offset by new production going online in such disparate spots as Uganda, Kuwait and Brazil. “But what’s really going to make the difference is U.S. production.”

Addressing the U.S. oil output situation directly, Dukes said that “right now, U.S. onshore production is about 8.5 MMbpd. We believe that it’s on its way to an eventual 12 MMbpd. The latter sentence brought some murmured “oohs” and “ahs” from the early-morning audience. Dukes further explained that there is a discernable pattern as to how this production rate is building. “Most of the other shales, like the Bakken and Eagle Ford, are providing a ‘base’ for the Permian (basin). I think the Permian could eventually go all the way to producing 7.0 MMbpd. Right now, it’s at about 3.5 MMbpd and headed to 4.0 MMbpd.”

Of course, in what timeframe the Permian’s output gets toward the larger figure depends on how well the industry makes progress in fixing the region’s logistical problems, number one of which is pipeline capacity. “I do think that the massive pipeline build-out appears sufficient to carry the Permian basin well into the late 2020s,” offered Dukes. “And until recently, the pipeline situation in the Permian was one of three unsettled things that were causing oil prices to spark higher, the other two being political uncertainty (regarding Iran) and how much spare production capacity that OPEC really has—we know the answers to these three things much better now.”

Going back to the Permain basin, Dukes said that there is eventual potential for up to 9.0 MMbpd in Permian pipeline capacity. “In fact, just counting what is on the books for confirmed pipeline projects already, we could have a capacity of 7.0 MMbpd.” Yet, in the near term, he believes that current Permian constraints could lead to a short-term pipeline frenzy. “And so we have, in our projections for the rest of the year, a 15%-to-20% drop in (drilling and development) activity for the rest of the year, because the level of work has to fit with the pipeline constraints.”

Then there is the subject of all the associated gas being produced along with the shale oil. There may not be enough pipeline capacity to move all of that gas, either. “In the Permian, we’re talking about an oil play that also will be the second-largest gas play in the country. It’s possible, in a very short time period, that to keep gas production down, the flaring of as much as 700 MMcfd to 800 MMcfd could occur, explained Dukes. “However, that’s not the best situation for the industry, environmentally.”

“Water is also going to be a major consideration for the industry in this period, moving forward,” added Dukes. “It is possible that aggressive water costs could eventually push Permian oil production down nearly 400,000 bpd.”

On some other subjects, the analyst said that terminal declines may prove to be higher in the Permian than other shales, somewhere between 12% and 15%. In addition, there seems to be some investor appetite for discipline. The question, he said, is whether operators should appease shareholders and/or pursue aggressive growth targets. Meanwhile, operators may have to pay more for equipment and services through the balance of 2018. “I think it’s inevitable that we’re going to see some inflation in service/supply costs,” added Dukes.